Against BoJ Intentions, Japan Becomes Land Of The Rising Yield

By Michael Aneiro

A couple of days ago this blog wrote about how the Bank of Japan’s colossal monetary easing program has achieved two of its aims by weakening the yen and pushing Japanese stocks to new highs, but that it’s failing at another aim to push borrowing costs lower, and instead just the opposite is happening as Japanese government bond yields have been surging. Kana Inagaki and Eleanor Warnock explore the issue in today’s The Wall Street Journal, saying it’s been vexing central bankers and analysts alike:

Analysts, bankers and central-bank officials generally agree that it is too soon to say whether the rise in rates is a temporary phenomenon or if it threatens the bank’s strategy of trying to stimulate growth by ending 15 years of deflationary pressures. The central bank plans to double its holdings of Japanese government bonds over the next two years. By buying bonds, it puts more money into the economy.

People familiar with the Bank of Japan’s thinking said the problem appears linked to a lack of liquidity in the market, with some regular participants now on the sidelines. They also noted that the central bank’s policy has been in place for just over a month, suggesting the market needs more time to settle down. Some investors are concerned that higher rates on Japanese government bonds have the potential to mar an otherwise bright picture for the economy since Prime Minister Shinzo Abe took office in December.

“These moves aren’t really justified,” said Shinji Hiramatsu, senior investment manager at Sompo Japan Nipponkoa Asset Management Co., which has ¥673 billion ($6.6 billion) under management. The volatility “just makes it a lot harder for us to know what to do, what strategy to take.”

The 10-year Japanese government bond yield finally fell a bit Thursday to 0.844% from 0.858% earlier in the day, per Tradeweb data, still well above the 0.535% yield seen in early April just before the BoJ unveiled its easing program.